UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
BIO-TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | ( |
| (Address of principal executive offices) (Zip Code) | (Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b- 2).
At February 3, 2022,
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| Item 1A. |
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
Bio-Techne Corporation and Subsidiaries
(in thousands, except per share data)
(unaudited)
| Quarter Ended December 31, | Six Months Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Earnings before income taxes | ||||||||||||||||
| Income taxes (benefit) | ||||||||||||||||
| Net earnings, including noncontrolling interest | ||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net earnings attributable to Bio-Techne | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ||||||||||||||
| Unrealized gains (losses) on derivative instruments - cash flow hedges, net of tax amounts disclosed in Note 8 | ||||||||||||||||
| Other comprehensive income (loss) | ( | ) | ||||||||||||||
| Other comprehensive income (loss) attributable to noncontrolling interest | ||||||||||||||||
| Other comprehensive income (loss) attributable to Bio-Techne | ( | ) | ||||||||||||||
| Comprehensive income attributable to Bio-Techne | $ | $ | $ | $ | ||||||||||||
| Earnings per share attributable to Bio-Techne: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
Bio-Techne Corporation and Subsidiaries
(in thousands, except share and per share data)
| December 31, | June 30, | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term available-for-sale investments | ||||||||
| Accounts receivable, less allowance for doubtful accounts of and , respectively | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | $ | ||||||
| Salaries, wages and related accruals | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities - current | ||||||||
| Contingent consideration payable | ||||||||
| Current portion of long-term debt obligations | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Deferred income taxes | ||||||||
| Long-term debt obligations | ||||||||
| Long-term contingent consideration payable | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Bio-Techne's Shareholders' equity: | ||||||||
| Undesignated capital stock, par; authorized shares; issued or outstanding | ||||||||
| Common stock, par value per share; authorized ; issued and outstanding and , respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Bio-Techne’s shareholders' equity | ||||||||
| Noncontrolling interest | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Bio-Techne Corporation and Subsidiaries
(in thousands)
(unaudited)
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings, including noncontrolling interest | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Costs recognized on sale of acquired inventory | ||||||||
| Deferred income taxes | ||||||||
| Stock-based compensation expense | ||||||||
| Contingent consideration payments | ( | ) | ( | ) | ||||
| Fair value adjustment to contingent consideration payable | ( | ) | ||||||
| Fair value adjustment on available for sale investments | ( | ) | ( | ) | ||||
| Asset impairment restructuring | ||||||||
| Eminence impairment | ||||||||
| Leases, net | ( | ) | ||||||
| Other operating activity | ||||||||
| Change in operating assets and operating liabilities, net of acquisition: | ||||||||
| Trade accounts and other receivables, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Trade accounts payable, accrued expenses, contract liabilities, and other | ( | ) | ||||||
| Salaries, wages and related accruals | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from maturities of available-for-sale investments | ||||||||
| Purchases of available-for-sale investments | ( | ) | ( | ) | ||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Acquisitions, net of cash acquired | ( | ) | ||||||
| Investment of forward purchase contract | ( | ) | ||||||
| Other investing activity | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash dividends | ( | ) | ( | ) | ||||
| Proceeds from stock option exercises | ||||||||
| Re-purchases of common stock | ( | ) | ||||||
| Borrowings under line-of-credit agreement | ||||||||
| Repayments of long-term debt | ( | ) | ) | |||||
| Contingent consideration payments | ( | ) | ||||||
| Other financing activity | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net change in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bio-Techne Corporation and Subsidiaries
(unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies:
The interim consolidated financial statements of Bio-Techne Corporation and subsidiaries, (the Company) presented here have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended June 30, 2021, included in the Company's Annual Report on Form 10-K for fiscal 2021. A summary of significant accounting policies followed by the Company is detailed in the Company's Annual Report on Form 10-K for fiscal 2021. The Company follows these policies in preparation of the interim unaudited condensed consolidated financial statements.
During the six months ended December 31, 2021, the Company operated under operating segments, Protein Sciences and Diagnostics and Genomics. The operating segments the Company operated under were consistent with the Company's operating segments disclosed in the Company's Annual Report on Form 10-K for fiscal 2021.
Goodwill: In the second quarter of fiscal 2022, Changzhou Eminence Biotechnology Co., Ltd. (Eminence) notified the Company of its need for additional capital to execute its growth plan. The Company first attempted to find outside equity financing support for the Eminence investment but was unable to do so. The Company then reviewed the additional financing needs required to successfully ramp Eminence’s business, which ultimately did not meet the Company’s return on capital requirements. Therefore, the Company did not provide additional funding to Eminence. As a result of not obtaining additional financing, Eminence notified the Company of its plans to cease operations and liquidate its business.
Given the upcoming liquidation process to dispose of the Eminence assets, the Company identified a triggering event in the second quarter of fiscal 2022 and performed impairment testing. The impairment testing resulted in a full impairment of the Eminence goodwill and intangible assets, which resulted in charges of $
The Company recorded the impairment charges within the General and Administrative line in the Consolidated Income Statement. The impact on net income attributable to Bio-Techne was approximately $
Investments: In December 2021, the Company paid $
The first part of the forward contract is triggered upon Wilson Wolf achieving approximately $
Once the first part of the forward contract is triggered, the second part of the forward contract will automatically trigger, and requires the Company to acquire the remaining equity interest in Wilson Wolf on December 31, 2027 based on a revenue multiple. The second part of the contract would be accelerated in advance of December 31, 2027, if Wilson Wolf meets its second milestone of approximately $
Restructuring actions: Restructuring actions generally include significant actions involving employee-related severance charges, contract termination costs, and impairments and disposals of assets associated with such actions. Employee-related severance charges are based upon distributed employment policies and substantive severance plans. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Asset impairment and disposal charges include right of use assets, leasehold improvements, and other asset write-downs associated with combining operations and disposal of assets.
In September 2021, the Company informed employees of our decision to close our Exosome Diagnostics Germany facility, discontinuing lab and research occurring at the site, as part of a realignment of activities within our Exosome Diagnostics business. The closure of the site is expected to be completed in the third quarter of fiscal 2022. As a result of the restructuring activities, an estimated pre-tax charge of $
| Employee Severance | Asset Impairment and other | Total | ||||||||||
| Selling, general and administrative | $ | $ | $ | |||||||||
Restructuring actions, including cash and non-cash impacts, are as follows (in thousands):
| Employee Severance | Other | Total | ||||||||||
| Accrued restructuring action balances as of September 31, 2021(1) | $ | $ | $ | |||||||||
| Incremental expense incurred in the second quarter of fiscal 2022 | ||||||||||||
| Cash payments | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments | ( | ) | ||||||||||
| Accrued restructuring actions balances as of December 31, 2021 | $ | $ | $ | |||||||||
(1) The expense recorded for the three months ended September 31, 2021 of $
During the second quarter of fiscal 2022, the Company also incurred a restructuring charge of $
Recently Adopted Accounting Pronouncements
There were no accounting pronouncements adopted in the first and second quarter of fiscal 2022. Refer to the Form 10-K for accounting pronouncements adopted prior to June 30, 2021.
Note 2. Revenue Recognition:
Consumables revenues consist of single-use products and are recognized at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment. Instruments revenues typically consist of longer-lived assets that, for the substantial majority of sales, are recognized at a point in time in a manner similar to consumables. Service revenues consist of extended warranty contracts, post contract support, and custom development projects that are recognized over time as either the customers receive and consume the benefits of such services simultaneously or the underlying asset being developed has no alternative use for the Company at contract inception and the Company has an enforceable right to payment for the portion of the performance completed. Service revenues also include laboratory services recognized at point in time. Prior to fiscal 2021, the Company has not recognized revenue upon completion of the performance obligation for laboratory services, but rather upon cash receipt, which was subsequent to the performance obligation being satisfied. The Company accounted for these services based on cash receipts as we did not have significant historical experience collecting payments from Medicare or other insurance providers and considered the variable consideration for such services to be constrained as it would not be probable that a significant amount of revenue would not need to be reversed in future periods for the services provided. Given Medicare coverage for our laboratory services became effective on December 1, 2019, the Company considered it to have sufficient data to estimate variable consideration as of July 1, 2020 for laboratory services that are reimbursed by Medicare. The amount of cash received in fiscal 2021 for laboratory services reimbursed by Medicare that were performed prior to July 1, 2020 was approximately $
The Company elected the exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less and the exemption to exclude future performance obligations that are accounted under the sales-based or usage-based royalty guidance. The Company’s unfulfilled performance obligations were not material as of December 31, 2021.
Contracts with customers that contain instruments may include multiple performance obligations. For these contracts, the Company allocates the contract’s transaction price to each performance obligation on a relative standalone selling price basis. Allocation of the transaction price is determined at the contracts’ inception.
Payment terms for shipments to end-users are generally net 30 days. Payment terms for distributor shipments may range from 30 to 90 days. Service arrangements commonly call for payments in advance of performing the work (e.g. extended warranty and service contracts), upon completion of the service (e.g. custom development manufacturing) or a mix of both.
Contract assets include revenues recognized in advance of billings. Contract assets are included within other current assets in the accompanying balance sheet as the amount of time expected to lapse until the company's right to consideration becomes unconditional is less than one year. We elected the practical expedient allowing us to expense contract costs that would otherwise be capitalized and amortized over a period of less than one year. Contract assets as of December 31, 2021 are not material.
Contract liabilities include billings in excess of revenues recognized, such as those resulting from customer advances and deposits and unearned revenue on warranty contracts. Contract liabilities as of December 31, 2021 and June 30, 2021 were approximately $
Any claims for credit or return of goods must be made within 10 days of receipt. Revenues are reduced to reflect estimated credits and returns. Although the amounts recorded for these revenue deductions are dependent on estimates and assumptions, historically our adjustments to actual results have not been material.
Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related shipping and handling costs are reflected in cost of products. We elected the practical expedient that allows us to account for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment cost, and we accrue costs of shipping and handling when the related revenue is recognized.
The following tables present our disaggregated revenue for the periods presented.
Revenue by type is as follows:
| Quarter Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Consumables | $ | $ | $ | $ | ||||||||||||
| Instruments | ||||||||||||||||
| Services | ||||||||||||||||
| Total product and services revenue, net | $ | $ | $ | $ | ||||||||||||
| Royalty revenues | ||||||||||||||||
| Total revenues, net | $ | $ | $ | $ | ||||||||||||
Revenue by geography is as follows:
| Quarter Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| EMEA, excluding United Kingdom | ||||||||||||||||
| United Kingdom | ||||||||||||||||
| APAC, excluding Greater China | ||||||||||||||||
| Greater China | ||||||||||||||||
| Rest of World | ||||||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
Note 3. Selected Balance Sheet Data:
Inventories:
Inventories consist of (in thousands):
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods(1) | ||||||||
| Inventories, net | $ | $ | ||||||
(1)Finished goods inventory of $
Property and Equipment:
Property and equipment consist of (in thousands):
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Construction in progress | ||||||||
| Property and equipment, cost | ||||||||
| Accumulated depreciation and amortization | ) | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Intangible Assets:
Intangible assets consist of (in thousands):
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Developed technology | $ | $ | ||||||
| Trade names | ||||||||
| Customer relationships | ||||||||
| Patents | ||||||||
| Other intangibles | ||||||||
| Definite-lived intangible assets | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Definite-lived intangibles assets, net | ||||||||
| In process research and development | ||||||||
| Total intangible assets, net | $ | $ | ||||||
Changes to the carrying amount of net intangible assets for the quarter ended December 31, 2021 consist of (in thousands):
| Beginning balance | $ | |||
| Acquisitions | ||||
| Other additions | ||||
| Amortization expense | ( | ) | ||
| Currency translation | ( | ) | ||
| Eminence impairment (1) | ( | ) | ||
| Ending balance | $ |
The estimated future amortization expense for intangible assets as of December 31, 2021 is as follows (in thousands):
| 2022 remainder | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
(1)As disclosed in Note 1, the Company recorded an impairment charge of $
Goodwill:
Changes to the carrying amount of goodwill for the quarter ended December 31, 2021 consist of (in thousands):
| Protein Sciences | Diagnostics and Genomics | Total | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Acquisitions | ||||||||||||
| Eminence impairment | ( | ) | ( | ) | ||||||||
| Currency translation | ( | ) | ( | ) | ( | ) | ||||||
| Ending balance | $ | $ | $ | |||||||||
We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. The Company performed a quantitative goodwill impairment assessment for all of its reporting units during the fourth quarter of fiscal 2021. No indicators of impairment were identified as part of our assessment.
During the quarter ended September 30, 2021, the Company combined the management of the Exosome Diagnostics and Asuragen reporting units, both of which are included in the Diagnostics and Genomics operating segment. In conjunction with the combination of the reporting units, a qualitative goodwill impairment assessment was performed. The qualitative assessment identified no indicators of impairment.
As disclosed in Note 1, the Company identified a triggering event and a goodwill impairment charge of $
Note 4. Acquisitions:
We periodically complete business combinations that align with our business strategy. Acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date and that the results of operations of each acquired business be included in our consolidated statements of comprehensive income from their respective dates of acquisitions. Acquisition costs are recorded in selling, general and administrative expenses as incurred.
2021 Acquisitions
Asuragen, Inc.
On April 6, 2021, the Company acquired all of the ownership interests of Asuragen, Inc. (Asuragen) for approximately $
Purchase accounting remained open as of December 31, 2021 for our income tax assessment of acquired net operating losses with the completion of the stub period tax returns and the corresponding goodwill impact. The Company expects to finalize the allocation of purchase price in the third quarter of fiscal 2022. Net sales and operating loss of this business included in Bio-Techne's consolidated results of operations for the quarter ended December 31, 2021 were approximately $
| Preliminary allocation at acquisition date and at December 31, 2021 | ||||
| Current assets, net of cash | $ | |||
| Equipment and other long-term assets | ||||
| Intangible assets: | ||||
| Developed technology | ||||
| In-process research and development | ||||
| Customer relationships | ||||
| Trade names | ||||
| Non-competition agreement | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Liabilities | ||||
| Deferred income taxes, net | ||||
| Net assets acquired | $ | |||
| Cash paid, net of cash acquired | ||||
| Contingent consideration payable | ||||
| Net assets acquired | $ | |||
Tangible assets and liabilities acquired were recorded at fair value on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, in-process research and development, and customer relationships was based on management's preliminary forecasted cash inflows and outflows and using a multiperiod excess earnings method to calculate the fair value of assets purchased. The amount recorded for developed technology is being amortized with the expense reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income. The amortization period for developed technology is estimated to be
Note 5. Fair Value Measurements:
The Company’s financial instruments include cash and cash equivalents, available for sale investments, derivative instruments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.
Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.
The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 may also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.
The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| Total carrying value as of | Fair Value Measurements Using Inputs Considered as | |||||||||||||||
| December 31, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Equity securities (1) | $ | $ | $ | $ | ||||||||||||
| Certificates of deposit (2) | ||||||||||||||||
| Derivative instruments – cash flow hedges | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Derivative instruments - cash flow hedges | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| Total carrying value as of | Fair Value Measurements Using Inputs Considered as | |||||||||||||||
| June 30, 2021 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Equity securities (1) | $ | $ | $ | $ | ||||||||||||
| Certificates of deposit (2) | ||||||||||||||||
| Derivative instruments – cash flow hedges | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Contingent consideration | $ | $ | $ | $ | ||||||||||||
| Derivative instruments - cash flow hedges | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| (1) | Included in available-for-sale investments on the balance sheet. The cost basis in the Company's investment in ChemoCentryx Inc (CCXI) was $ |
| (2) | Included in available-for-sale investments on the balance sheet. The certificates of deposit have contractual maturity dates within one year. |
Fair value measurements of available for sale securities
Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level 1 assets. The Company's warrant to purchase additional shares at a specified future price was valued using a Black-Scholes model with observable inputs in active markets and therefore was classified as a Level 2 asset.
Fair value measurements of derivative instruments
In October 2018, the Company entered into forward starting swaps designated as cash flow hedges on outstanding debt. The forward starting swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt described in Note 6 to that of a fixed interest rate. Accordingly, as part of the forward starting swaps, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on an initial $
In May 2021, the Company entered into a new forward starting swap designated as a cash flow hedge on forecasted debt. The forward starting swap reduces the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s forecasted variable interest long-term debt to that of a fixed interest rate. Accordingly, as part of the forward starting swap, the Company exchanges, at specified intervals, the difference between floating and fixed interest amounts based on $
Changes in the fair value of the designated hedged instruments are reported as a component of other comprehensive income and reclassified into interest expense over the corresponding term of the cash flow hedge. The Company reclassified $
Fair value measurements of contingent consideration
The Company has $
The ultimate settlement of contingent consideration liabilities for the Asuragen and B-Mogen acquisitions could deviate from current estimates based on the actual results of the financial measures described above. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.
During the first quarter of fiscal 2022, the Company made a $
The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
| Quarter Ended | Six Months Ended | |||||||
| December 31, 2021 | December 31, 2021 | |||||||
| Fair value at the beginning of period | $ | $ | ||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Payments | ( | ) | ||||||
| Fair value at the end of period | $ | $ | ||||||
The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we may incur impairment charges for securities in our investment portfolio.
Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.
Cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.
Long-term debt – The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility and long-term debt approximates fair value because our interest rate is variable and reflects current market rates.
Note 6. Debt and Other Financing Arrangements:
On August 1, 2018, the Company entered into a new revolving line-of-credit and term loan governed by a Credit Agreement (the Credit Agreement). The Credit Agreement provides for a revolving credit facility of $
The Credit Agreement matures on August 1, 2023 and contains customary restrictive and financial covenants and customary events of default. As of December 31, 2021, the outstanding balance under the Credit Agreement was $
Note 7. Leases:
As a lessee, the company leases offices, labs, and manufacturing facilities, as well as vehicles, copiers, and other equipment. The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on July 1, 2019.
The Company recognizes operating lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is Bio-Techne’s incremental borrowing rate or, if available, the rate implicit in the lease. Bio-Techne determines the incremental borrowing rate for each lease based primarily on its lease term and the economic environment of the applicable country or region. During the six months ended December 31, 2021, the Company recognized $
The following table summarizes the balance sheet classification of the Company’s operating leases and amounts of right of use assets and lease liabilities and the weighted average remaining lease term and weighted average discount rate for the Company’s operating leases (asset and liability amounts are in thousands):
| Balance Sheet Classification | As of: December 31, 2021 | ||||
| Operating leases: | |||||
| Operating lease right of use assets | Right of Use Asset | $ | |||
| Current operating lease liabilities | Operating lease liabilities current | $ | |||
| Noncurrent operating lease liabilities | Operating lease liabilities | ||||
| Total operating lease liabilities | $ | ||||
| Weighted average remaining lease term (in years): | |||||
| Weighted average discount rate: | % | ||||
The following table summarizes the cash paid for amounts included in the measurement of operating lease liabilities and right of use assets obtained in exchange for new operating lease liabilities for the six months ended (in thousands):
| Six months ended December 31, 2021 | ||||
| Cash amounts paid on operating lease liabilities | $ | |||
| Right of use assets obtained in exchange for lease liabilities | ||||
The following table summarizes the fair value of the lease liability by payment date for the Company’s operating leases by fiscal year (in thousands):
| Operating Leases | ||||
| Remainder of fiscal 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| Less: Amounts representing interest | ||||
| Total Lease obligations | $ | |||
Certain leases include one or more options to renew, with terms that extend the lease term up to years. Bio-Techne includes the option to renew the lease as part of the right of use lease asset and liability when it is reasonably certain the Company will exercise the option. In addition, certain leases contain fair value purchase and termination options with an associated penalty. In general, Bio-Techne is not reasonably certain to exercise such options.
Note 8. Supplemental Equity and Accumulated Other Comprehensive Income (Loss):
Supplemental Equity
The Company has declared cash dividends per share of $
Consolidated Changes in Equity (amounts in thousands)
| Bio-Techne Shareholders | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | ||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income(Loss) | Interest | Total | ||||||||||||||||||||||
| Balances at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net earnings | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Share repurchases | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | ( | ) | ( | ) | ||||||||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net earnings | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||
| Share repurchases | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | ||||||||||||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||||||
| Balances at December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Bio-Techne Shareholders | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | ||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Income(Loss) | Interest | Total | ||||||||||||||||||||||
| Balances at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Cumulative effect adjustments due to adoption of new accounting standards | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Common stock issued to employee stock purchase plan | ||||||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||||||
| Balances at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Non-controlling interest in Eminence | ||||||||||||||||||||||||||||
| Net earnings | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ( | ) | ||||||||||||||||||||||||||
| Common stock issued for restricted stock awards | ( | ) | ||||||||||||||||||||||||||
| Cash dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Employee stock purchase plan expense | ||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
Accumulated Other Comprehensive Income
The components of other comprehensive income (loss) consist of changes in foreign currency translation adjustments and changes in net unrealized gains (losses) on derivative instruments designated as cash flow hedges. The Company reclassified $
The accumulated balances related to each component of other comprehensive income (loss) attributable to Bio-Techne, net of tax, are summarized as follows:
| Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
| Balance as of June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss) before reclassifications, net of taxes, attributable to Bio-Techne | ( | ) | ( | ) | ||||||||
| Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne(1) | $ | $ | ||||||||||
| Balance as of December 31, 2021(2) | $ | ( | ) | ( | ) | ( | ) | |||||
| Unrealized Gains (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | ||||||||||
| Balance as of June 30, 2020 attributable to Bio-Techne | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income (loss), net of tax before reclassifications, attributable to Bio-Techne | ( | ) | ||||||||||
| Reclassification from loss on derivatives to interest expense, net of taxes, attributable to Bio-Techne (3) | ||||||||||||
| Balance as of December 31, 2020(2) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| (1) | Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $ |
| (2) | The Company had net deferred tax benefits of $ |
| (3) | Gains (losses) on the interest swap are reclassified into interest expense as payments on the derivative agreement are made. The Company reclassified $ |
Note 9. Earnings Per Share:
The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share amounts):
| Quarter Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Earnings per share – basic: | ||||||||||||||||
| Net earnings, including noncontrolling interest | $ | $ | $ | $ | ||||||||||||
| Less net earnings (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net earnings attributable to Bio-Techne | $ | $ | $ | $ | ||||||||||||
| Income allocated to participating securities | ( | ) | ) | ) | ) | |||||||||||
| Income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted-average shares outstanding – basic | ||||||||||||||||
| Earnings per share – basic | $ | $ | $ | $ | ||||||||||||
| Earnings per share – diluted: | ||||||||||||||||
| Net earnings, including noncontrolling interest | $ | $ | $ | $ | ||||||||||||
| Less net earnings (loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net earnings attributable to Bio-Techne | $ | $ | $ | $ | ||||||||||||
| Income allocated to participating securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted-average shares outstanding – basic | ||||||||||||||||
| Dilutive effect of stock options and restricted stock units | ||||||||||||||||
| Weighted-average common shares outstanding – diluted | ||||||||||||||||
| Earnings per share – diluted | $ | $ | $ | $ | ||||||||||||
The dilutive effect of stock options and restricted stock units in the above table excludes all options for which the aggregate exercise proceeds exceeded the average market price for the period. The number of potentially dilutive option shares excluded from the calculation was
Note 10. Share-based Compensation:
During the six months ended December 31, 2021 and 2020, the Company granted
Stock options for
Stock-based compensation expense, inclusive of payroll taxes, of $
In fiscal 2015, the Company established the Bio-Techne Corporation 2014 Employee Stock Purchase Plan (ESPP), which was approved by the Company's shareholders on October 30, 2014, and which is designed to comply with IRS provisions governing employee stock purchase plans.
Note 11. Other Income / (Expense):
The components of other income (expense) in the accompanying Statement of Earnings and Comprehensive Income are as follows:
| Quarter Ended | Six Months | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Interest income | ||||||||||||||||
| Other non-operating income (expense), net(1) | ||||||||||||||||
| Total other income (expense) | $ | $ | $ | $ | ( | ) | ||||||||||
| (1) | Primarily due to a $ |
Note 12. Income Taxes:
The Company’s effective income tax rate for the second quarter of fiscal 2022 and 2021 was
The Company recognized total net benefits related to discrete tax items of $
Note 13. Segment Information:
The Company's management evaluates segment operating performance based on operating income before certain charges to cost of sales and selling, general and administrative expenses, principally associated with the impact of partially owned consolidated subsidiaries as well as acquisition accounting related to inventory, amortization of acquisition-related intangible assets and other acquisition-related expenses. The Protein Sciences and Diagnostics and Genomics segments both include consumables, instruments, services and royalty revenue.
The following is financial information relating to the Company's reportable segments (in thousands):
| Quarter Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales: | ||||||||||||||||
| Protein Sciences | $ | $ | $ | $ | ||||||||||||
| Diagnostics and Genomics | ||||||||||||||||
| Intersegment | ( | ) | ( | ) | ( | |||||||||||